Global & Australian Forecasts – June 2013

Global growth forecasts little changed. Still waiting to see firm evidence that the expected acceleration in activity through 2013 is beginning. Australian economy now at a watershed as mining investment slows and domestic economy struggles.

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Global growth forecasts little changed. Still waiting to see firm evidence that the expected acceleration in activity through 2013 is beginning. Markets focussing on chances that Fed could start winding back QE, sparking currency volatility and weaker equities. Emerging markets still driving most global growth but some recent data in China, India and Brazil have been on the soft side. Australian economy now at a watershed as mining investment slows and domestic economy struggles. NAB activity forecasts a touch lower in out years. Currency forecasts lower. Labour market to keep deteriorating. Door remains open for another rate cut.

  • The consensus view is that the pace of global growth should accelerate through the course of 2013 as recessions end in Western Europe, Abenomics lifts Japanese growth, the US continues its moderate expansion and solid growth continues in the big emerging economies. So far neither the business surveys nor the monthly industrial and trade data show such a synchronised global upturn with soft data in the US, ongoing recession in the Euro-zone and uncertainty in global equity and currency markets over the future course and implications of US and Japanese monetary policy. We still expect global growth to move back to trend next year but downside risks have become more prominent in the last few weeks.
  • Evidence that the slowing in labour intensive mining investment is well underway and weakness in gross national expenditure has led us to soften our medium-term GDP forecasts. We see GDP softening to 2.3% in 2013 before rising to 2.8% in 2014 (was 3.0%). In financial year terms, the lower forecasts are more evident (2013-14 now 2.3%, was 2.7%). Consistent with this, we see unemployment exceeding 6% by the end of 2013 (5¾% previously) and remaining around 6¼% in the out years. We have revised down our currency forecasts for the AUD/USD to 93c by end 2013 and 87c by late 2014.
  • While a lower Australian dollar and rates should help to offset some of the impact on the Australian economy from structural adjustment, they will be insufficient to prevent unemployment from rising. With inflationary pressures well contained in the near term, we expect the RBA to cut again – we still see November as the most likely timing (with the lower currency giving the RBA time). However, stimulus could come earlier if the labour market weakens more quickly than anticipated.

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